5.2 The Retirement Earnings Test & the Repeal of WEP and GPO
Key Takeaways
- In 2026 the Retirement Earnings Test withholds $1 for every $2 of earnings above $24,480 before the FRA year, and $1 for every $3 above $65,160 in the FRA year, counting only months before FRA.
- Only wages and net self-employment earnings count; IRA withdrawals, pensions, annuities, and investment income never trigger the earnings test.
- Benefits withheld under the earnings test are not simply lost: at FRA, SSA removes the early-claiming reduction for each month benefits were fully withheld.
- The Social Security Fairness Act, signed January 5, 2025, repealed WEP and GPO for benefits payable for January 2024 and later, raising benefits for many teachers, police, firefighters, and CSRS retirees.
- After the repeal, people with non-covered pensions who never applied for retirement, spousal, or survivor benefits should apply promptly, because retroactivity is generally limited to six months.
The Retirement Earnings Test & the Repeal of WEP and GPO
Core Principle: Two sets of rules often confuse clients who work while claiming Social Security or who earned a government pension. The Retirement Earnings Test (RET) temporarily withholds benefits from early claimants who keep working, and those benefits are largely recovered later. The Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) once permanently cut benefits for people with non-covered pensions. The Social Security Fairness Act of 2025 repealed both for benefits payable for January 2024 and later.
The Retirement Earnings Test (RET): Scope and Mechanics
The RET applies only to beneficiaries who claim before Full Retirement Age (FRA) and still have earned income from work. FRA is 67 for anyone born in 1960 or later. The test uses two annual thresholds, both indexed to national wage growth.
| Period | 2026 Exempt Amount | Withholding Rule |
|---|---|---|
| Years before the year FRA is reached | $24,480/year ($2,040/month) | $1 of benefits withheld for every $2 of earnings above the limit |
| Calendar year FRA is reached (months before FRA only) | $65,160/year ($5,430/month) | $1 withheld for every $3 above the limit |
| Month FRA is reached and later | No limit | No withholding |
Two details matter in practice:
- Only months before FRA count in the year FRA is reached. Earnings in the FRA month and later are ignored.
- Special first-year monthly rule: In the first year of retirement, SSA can pay a full benefit for any "non-service month" (earnings at or below the monthly limit and no substantial self-employment), even if annual earnings already exceed the annual limit. This protects people who retire mid-year after a high-earning stretch.
What Counts as "Earnings" Under the RET?
- Included: wages, salary, bonuses, commissions, vacation pay, and net earnings from self-employment.
- Excluded: IRA and 401(k) distributions, pensions, annuity payments, dividends, interest, capital gains, rental income (unless it is a business), and government benefits.
Recalculation at FRA: Why RET Withholding Is Not Lost
When benefits are withheld, SSA treats those months as if the person had not claimed yet. At FRA, SSA recomputes the benefit and removes the early-claiming reduction for every month in which a benefit was fully withheld. The PIA does not change. What changes is the reduction factor applied to it. The higher monthly benefit from FRA onward restores the value of the withheld checks over a normal lifespan. If the beneficiary dies soon after FRA, the withheld amounts are not refunded.
Practical Calculation: RET Withholding and Restoration
Brian claims at 62 with an FRA of 67. His PIA is $2,000, and claiming 60 months early reduces it by 30% to $1,400/month.
In his first full year of benefits (before the year he reaches FRA), Brian earns $44,480 from consulting:
- Excess earnings: $44,480 − $24,480 = $20,000
- Annual withholding: $20,000 ÷ 2 = $10,000
- Checks withheld: SSA withholds whole monthly checks until the $10,000 is covered. $10,000 ÷ $1,400 = 7.14, so 8 checks ($11,200) are withheld. The $1,200 over-withheld is paid back after SSA reconciles the year's actual earnings.
- Restoration at 67: Those 8 fully withheld months are credited back. Brian is treated as claiming 52 months early instead of 60. His reduction falls from 30.0% to 26.67% (36 × 5/9% + 16 × 5/12%), and his benefit rises from $1,400 to about $1,466.67/month (about $67 more per month, before COLAs) for life.
WEP and GPO: What They Were
For decades, two provisions reduced benefits for people who also received a pension from work not covered by Social Security. Examples included many teachers, police officers, and firefighters in certain states; federal employees under CSRS; and people covered by some foreign pension systems.
| Provision (repealed) | Former Effect | Target |
|---|---|---|
| Windfall Elimination Provision (WEP) | Lowered the 90% factor in the worker's own PIA formula (to as low as 40%), limited to half the non-covered pension | The worker's own retirement or disability benefit |
| Government Pension Offset (GPO) | Reduced spousal or survivor benefits by two-thirds of the non-covered government pension, often to zero | Spousal and survivor benefits |
The Social Security Fairness Act of 2025
The Social Security Fairness Act was signed into law on January 5, 2025. It ends WEP and GPO for Social Security benefits payable for January 2024 and later. December 2023 was the last month either provision applied.
How SSA Implemented the Repeal
- Higher monthly benefits: Beginning in early 2025, SSA recalculated affected benefits. Most affected beneficiaries saw the new amount starting with their March 2025 benefit, paid in April 2025.
- Retroactive payments: SSA made one-time payments covering the increase back to January 2024. By July 7, 2025, it had sent more than 3.1 million payments totaling $17 billion.
- People who never applied: Some people skipped applying for retirement, spousal, or survivor benefits because WEP or GPO would have reduced them to little or nothing. They must file an application now. Normal retroactivity limits still apply, generally up to six months for retirement and survivor benefits, so a delay in filing can permanently cost months of benefits.
Planning Implications for Public-Sector Clients
- Own benefit: A worker's covered earnings now produce a PIA under the normal 90%/32%/15% formula, even if the worker also receives a non-covered pension.
- Spousal and survivor benefits: A spouse or widow(er) with a non-covered pension can now receive spousal or survivor benefits without the two-thirds offset. This can change Social Security claiming strategy and the value of pension survivor options.
- What did not change: Non-covered work still earns no Social Security credits. A worker must still have 40 credits from covered work for an own retirement benefit, and the dual-entitlement rules still apply between an own benefit and a spousal or survivor benefit.
- Medicare premiums: Once a Social Security benefit starts or increases, Part B premiums are generally deducted from it, so clients who were paying Medicare bills directly should watch for billing changes.
Advisor-Client Case Scenario: Elena After the Repeal
Elena (age 62) worked 22 years as a public university administrator under a non-covered state plan and receives a $2,700/month pension. Earlier, she worked 14 years in covered private-sector jobs, which produced a PIA of $1,100/month. Her husband Marcus has a PIA of $2,800/month.
Her advisor, Kenneth, updates her plan under current law:
- Own benefit: With WEP repealed, Elena's PIA is the full $1,100. It is reduced if she claims before her FRA of 67.
- Spousal benefit: 50% of Marcus's PIA is $1,400. Under dual entitlement, the spousal excess is $1,400 − $1,100 = $300 at her FRA, payable once Marcus has filed. The old GPO offset of two-thirds of her pension ($1,800) no longer eliminates it.
- Survivor benefit: If Marcus dies first, Elena can receive up to 100% of Marcus's benefit (at least $2,800 if he claims at FRA, more if he delays). That replaces her own $1,100 instead of adding to it.
- Strategy: Because a survivor benefit is now fully available, Marcus delaying his claim to 70 raises Elena's potential lifetime survivor income. Kenneth models Marcus delaying while Elena claims her own benefit earlier, rather than assuming the pension makes spousal and survivor planning irrelevant.
Exam Tip
- RET applies only to earned income before FRA. IRA withdrawals, pensions, and dividends never count.
- 2026 limits: $24,480 ($1 for $2) before the FRA year; $65,160 ($1 for $3) in the FRA year, counting only months before FRA.
- RET withholding is not a permanent loss. The benefit is recomputed at FRA for months fully withheld.
- WEP and GPO no longer apply to benefits payable for January 2024 and later under the Social Security Fairness Act (signed January 5, 2025). Expect questions about who benefits (non-covered public pensioners, including CSRS retirees) and what still applies (the 40-credit requirement and dual entitlement).
Under the Social Security Retirement Earnings Test (RET), which type of income is counted toward the annual exempt earnings thresholds for a beneficiary who claims benefits prior to Full Retirement Age?
What occurs when a worker has Social Security retirement benefits withheld due to the Retirement Earnings Test prior to reaching their Full Retirement Age (FRA)?
A retired teacher receives a pension from a school district that did not participate in Social Security. She also has 25 years of covered private-sector earnings, and her husband has a much higher PIA. Under current law, how do the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) affect her?